Travel and Reprise

I am heading back to Miami for a few days to see what's going on with my house and my kids in college there. I will take the IPad with me, but am absolutely horrible at blogging with it. I'll try. I want to write something about Benghazi and my sinking feeling that Obama has gotten away with it.

Anyhow, just to show you that I am not always wrong, I run a piece here that I wrote in May of 2011, some eighteen months ago, in which I laid out the key difficulty that would face the GOP in the November 2012 elections--note the last paragraph in particular.

Here it is,

Modern Democracy: The Battle Between the Taxpayers and the Voters

Spent a considerable time this weekend reading about the very serious crisis of the Euro. Different analysts grade the severity slightly differently, but all seem in agreement that the Euro, as we know it, is doomed. The most dire scenarios see the whole EMU (Economic Monetary Union) blowing apart, while the most optimistic see Greece, Portugal, perhaps one or two other "Southern" economies separated from the Euro (the numbers, and who exactly gets kicked off the island depend on whom you read), and the currency is reserved for the core "Northern" economies.

This reading then led me to a great deal of reading about the almost equally serious crisis affecting our own dollar. Then, I read about the crisis affecting the British pound. It was an intense amount of very depressing reading: I really need to get out more.

None of the sophisticated and highly technical analyses I read, however, picked up on the real source of the crises facing the major currencies, and, in fact, our core economic well-being. It all comes down to a very simple and basic fact. The western nations have developed societies where those who pay for government services, in general, are not the ones benefitting from the services. In the United States, for example, we have the top one percent of earners paying 38-41% of all Federal income tax. We have nearly half of Americans who pay no income tax, and another large percentage 15-20% who pay minimal income tax (and lets not even get into "Earned Income Tax Credits".) We essentially have a society where some 25% of the income earners pay close to 90% of all Federal income taxes. That 25% does not consume anywhere near 90% of the services provided by the Feds.

You can argue until you're blue in the face that this imbalance is "fair" because those who make more SHOULD pay more. Whether, however, you are "right" or "wrong," in socio-political terms this imbalance has set up a clash between those who pay and those who do not. To varying degrees, it is this clash we see played out in the US and Europe. In Spain, for example, huge crowds of "protestors" take to the streets demanding, well, demanding more from the state. This in a country with an unemployment rate of over 21%, and some of the most generous public benefits anywhere on earth, benefits that do not make it worthwhile to work. So who pays in Spain? Not the protestors, that's for sure. The payers are the ever-shrinking number of Spanish tax-paying wealth producers and, of course, the Germans. Greece, too, has been wracked by massive demonstrations, and even violent and lethal riots, by tens-of-thousands of Greeks objecting to any austerity measures. In other words, the demands are don't pay back the Germans, and let us continue to have a standard of living we have not earned, just because that's what we want and have gotten used to having.

I don't mean to pick on Spain or Greece; we have the same situation developing in the US. Americans are now fully into a political battle waged along new class lines. This is not the old battle of "haves" versus "have nots." This is a battle between "payers" and "pay nots," in other words, between taxpayers and voters.

I listened over the weekend to a parade of Democrats coming on the talk shows, one after another, calling for tax increases on the "wealthy." Some of these calls would push our top rate to some 62%. The Democratic formula is simple. You take the money from the 40% of the people who pay income taxes, and you buy the votes of the 60% who do not--and if there's a gap you borrow from the Chinese and the Japanese. This formula for political success and economic disaster was driven home to me when I was visiting a college campus many months ago. Nearly all the students were voting Democrat. They were full of outrage over some proposed cuts to local government services. None of these students pays income or property tax, few were from the community where they were now voting, and after their college years would move on. The bill would be paid by the local taxpayers; the goods, however, would be consumed by people who were not taxpayers.

We can debate the deficit and entitlement programs all we want. The basic problem is this split between taxpayers and voters. We are going to see that played out big time in the 2012 elections. The Republicans will have a hard sell convincing the voters to cut the benefits they receive from the taxpayers. The Democrats will have a much easier time having the voters give themselves more of the taxpayers money.